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Bite-size Information

Abstract

This case study describes Ryanair’s activity system and the company’s key success factor: low fares enabled by low operating costs. The case study shows that Ryanair succeeds by closely matching all of its activities to its strategy of maintaining low operating costs.

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Talk Citation

Grant, R. (2017, November 30). Ryanair: matching the activity system to the strategy [Video file]. In The Business & Management Collection, Henry Stewart Talks. Retrieved February 22, 2018, from https://hstalks.com/bm/3639/.

Transcript

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0:04

The basic key success factor is a fairly simple one.It's offering low fares through having low operating costs.But in terms of understanding how those low operating costs are delivered,we need to look at a interdependent and very carefully engineered set of activities.So, this is showing a set of specific strategic activities for Ryanair.It could just as easily be Southwest Airlinesor Air Asia or almost any other budget airline system,because what we see is that the model is fairly common amongst them.So we are seeing low operating costs beingachieved through having a product offering which is very simple,through achieving aircraft utilization which is extremely high,and by having very high levels of labor productivity.All these factors that make up the design of the product in terms of single class,there is no-frills product with very,very little in the way of additional services interms of achieving the high aircraft utilization,of very fast turnarounds,of having single type of airline,of point-to-point routes, of having no baggage transfer.All these factors inter-relate one with another to producethese three major sub-components intolow operating costs of the higher aircraft utilization,the no-frills product and the high labor productivity.And if any one of those single factors becomes inconsistent or we lose that,then it has risks to the whole system.And it is this interdependence of these activitieswhich makes the replication of these strategies actually quite difficult.So one of the interesting phenomena we see in budget airlines is that a large number ofthe established airlines have all tried to create low cost carriers as subsidiaries;United with its Ted airline,British Airways with its Go airline,Continental with Continental light,and several other examples.All of these have failed.The reason that they failed is that replicating this whole system has become difficult,that they've had to make compromises in certain aspects of the model.So that very often it's been at the level of labor relations.The model depends upon flexibility oflabor use which is very difficult to achieve with unionized labor.That flexibility also requiresthat there's a tremendous flexibility in terms of compensation systems as well.All of these have become difficult withinthe organizational framework of the legacy carrier.